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on Macroeconomics |
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Issue of 2020‒11‒16
100 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Eric McCoy |
| Abstract: | In the aftermath of the Global Financial Crisis (GFC), central bank policy rates edged closer to their effective lower bound – the point beyond which central banks cannot or do not want to lower rates further due to economic reasons or institutional constraints. Central banks therefore had to move beyond conventional policy instruments and instead resort to using unconventional tools such as large-scale asset purchase programs. With policy rates stuck at their effective lower bound for an extended period of time, central bankers and academics started to investigate the channels linking central bank unconventional monetary policy decisions to exchange rate movements. As will be discussed in this paper, extracting the expected policy rate and the term premium components of interest rates using a term structure model contributes to a better understanding of the channels through which the introduction of unconventional monetary policy measures have affected the dynamics of the euro – US dollar (EUR/USD) exchange rate. Empirical evidence is presented showing that the term premium component started to play a predominant role in anchoring EUR/USD developments to unconventional monetary policy, which first began in the US with the US Federal Reserve’s (Fed) QE1 in 2008 and which was later followed in the euro area by the onset of the ECB’s large-scale asset purchase program (APP) in 2015. The ECB’s APP, by compressing the term premium component, has likely triggered portfolio rebalancing and the ensuing cross-border capital flows have exerted a downwards pressure on the EUR/USD. Last but not least, the paper also presents empirical evidence demonstrating that incorporating non-monetary policy variables (relative stock market performance, a measure of domestic sovereign credit risk, as well as relative long-term inflation expectations and oil prices) into the analytical framework enhances significantly the understanding and analysis of EUR/USD developments. |
| Keywords: | Monetary Policy, Term Premia, Financial Markets, Exchange Rates, McCoy. |
| JEL: | E43 E44 E52 E58 F31 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:055&r=all |
| By: | Fernando M. Martin |
| Abstract: | Who prevails when fiscal and monetary authorities disagree about the value of public expenditure and how much to discount the future? When the fiscal authority sets debt as its main policy instrument it achieves fiscal dominance, rendering the preferences of the central bank, and thus its independence, irrelevant. When the central bank sets the nominal interest rate it renders fiscal impatience (its debt bias) irrelevant, but still faces its expenditure bias. I find that the expenditure bias is about an order of magnitude more severe than the debt bias and has a major impact on welfare through higher public spending, while the effect on other policies is relatively minor. I also find that the central bank can do little to overcome the negative impact of the fiscal authority's expenditure bias, though there are still gains from properly designing the central bank. |
| Keywords: | discretion; time-consistency; government debt; deficit; inflation; institutional design; political frictions |
| JEL: | E52 E58 E61 E62 |
| Date: | 2020–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88992&r=all |
| By: | Evan Karson; Christopher J. Neely |
| Abstract: | This article extends the work of Fawley and Neely (2013) to describe how major central banks have evolved unconventional monetary policies to encourage real activity and maintain stable inflation rates from 2013 through 2019. By 2013, central banks were moving from lump-sum asset purchase programs to continuing asset purchase programs, which are conditioned on economic conditions, careful communication strategies, bank lending programs with incentives and negative interest rates. This article reviews how central banks tailored their unconventional monetary methods to their various challenges and the structures of their respective economies. |
| Keywords: | monetary policy; quantitative easing; central bank; long-term yield |
| JEL: | E51 E58 E61 G12 |
| Date: | 2020–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88994&r=all |
| By: | Abdoulaye Millogo (Université de Sherbrooke) |
| Abstract: | Based on the Great Recession, this paper investigates the slow recovery-following recessions and the ability of unconventional monetary policies to dampen the adverse effects of shocks. The purpose is to elucidate one of the paradoxes of the business cycle—the slow pace of recovery of macroeconomic indicators and to evaluate the gains from monetary policies initiated by central banks following the financial crisis of 2008. Therefore, the article develops a model by integrating hysteresis mechanisms, modelled by the segmentation of the labour market between insiders and outsiders in the structure of a model with financial frictions to explain the paradox related to production and employment. Financial frictions are incorporated into the model by using a moral hazard problem between financial institutions and households. Calibrated on the U.S. economy, the simulations of the model show that the pace of recovery of output and employment takes more than 6 years to get back to the trend after the shocks. The cost in terms of the welfare of this slow recovery ranges between 0.30% to 5.82% according to the importance of the insiders-outsiders phenomenon. According to the baseline calibration of the model, the simulations also show that credit easing helps to strongly limit the effects and the costs in terms of welfare induced by these hysteresis mechanisms. Output and unemployment begin to converge towards their pre-shock simulations respectively 2.5 years, and 3 years when the central bank intervenes with credit easing. Welfare gains vary from 3.55% to 4.30%. |
| Keywords: | Great Recession, production, unemployment, financial frictions, hysteresis, insiders, outsiders, unconventional monetary policies, credit easing. |
| JEL: | E23 E24 E32 E58 G01 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:20-12&r=all |
| By: | Luca Fornaro; Martin Wolf |
| Abstract: | We study the effects of supply disruptions - for instance caused by the emergence of a pandemic - in an economy with Keynesian unemployment and endogenous productivity growth. By negatively affecting investment, even purely transitory negative supply shocks generate permanent output losses. The associated negative wealth effect depresses consumers'demand, which may even fall below the exogenous fall in supply. In this case, the optimal monetary policy response flips relative to conventional wisdom, as monetary expansions are needed to fight negative output gaps. If monetary policy is not expansionary enough a supply-demand doom loop emerges, causing a recession characterized by unemployment and weak productivity growth. Innovation policies, by fostering firms'investment, can restore full employment and healthy growth. |
| Keywords: | Supply shocks, Covid-19, hysteresis, investment, endogenous growth, monetary policy, fiscal policy, zero lower bound, Keynesian growth. |
| JEL: | E22 E31 E32 E52 E62 O42 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1748&r=all |
| By: | Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Bernd Christoph Ströhm; Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Looking for Shelter from the Storm Economic Forecasts for Eastern Europe for 2020-21 Executive summary (p. I-VI) May 2020 interim forecast update (p. 1-3) 1. Global overview (by Richard Grieveson; p. 4-7) 2. Regional overview (by Richard Grieveson p. 8-28) Albania Double whammy lays the economy low (by Isilda Mara; p. 30-32) Belarus Risky strategy with uncertain outcomes (by Rumen Dobrinsky; p. 33-34) Bosnia and Herzegovina Complex governance structure contributing to foreign dependence (by Bernd Christoph Ströhm; p. 35-36) Bulgaria The shock will likely be passed on to the labour market (by Rumen Dobrinsky; p. 37-38) Croatia Rebound in GDP will require recovery in tourism (by Hermine Vidovic; p. 39-40) Czech Republic Paying a high price for its skewed production structure (by Leon Podkaminer; p. 41-42) Estonia Enough fiscal space to weather the crisis (by Sebastian Leitner; p. 43-44) Hungary Crisis management a zigzag course from day to day (by Sándor Richter; p. 45-46) Kazakhstan The state attempts to rescue the economy under a double burden (by Alexandra Bykova; p. 47-49) Kosovo COVID-19 knocks out the government (by Isilda Mara; p. 50-51) Latvia Laxer restrictions cannot prevent a deep recession (by Sebastian Leitner; p. 52-43) Lithuania Substantial government support to boost the economy after recession (by Sebastian Leitner; p. 54-55) Moldova Keeping low key (by Gábor Hunya; p. 56-57) Montenegro Tourism’s over-dominance exacerbating economic downturn (by Bernd Christoph Ströhm; p. 58-59) North Macedonia Recession looms as pandemic dents vital car industry (by Bernd Christoph Ströhm; p. 60-61) Poland Making the best of the epidemic (by Leon Podkaminer; p. 62-63) Romania Strict lockdown and soaring fiscal deficits (by Gábor Hunya; p. 64-65) Russia Facing a double shock (by Vasily Astrov; p. 66-67) Serbia Recent strong growth hits a wall (by Richard Grieveson; p. 68-69) Slovakia Grim outlook ahead (by Doris Hanzl-Weiss; p. 70-71) Slovenia Pandemic hits manufacturing and service sectors alike (by Hermine Vidovic; p. 72-73) Turkey Heading back into stormy weather (by Richard Grieveson; p. 74-75) Ukraine IMF assistance crucial to keep the economy afloat (by Olga Pindyuk; p. 76-77) 4. Appendix – Table Summary of CESEE key measures regarding COVID-19 as of 30th April, 2020 (pp. 78-82) |
| Keywords: | CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, EU, CEE, SEE, CIS, Russia, Ukraine, Romania, Czech Republic, Hungary, Turkey, Serbia, China, US, convergence, business cycle, coronavirus, external risks, trade war, EU funds, private consumption, credit, investment, digitalisation, servitisation, exports, FDI, labour markets, unemployment, employment, wage growth, migration, inflation, central banks, monetary policy, fiscal policy |
| JEL: | E20 E31 E32 F15 F21 F22 F32 F51 G21 H60 J20 J30 J61 O47 O52 O57 P24 P27 P33 P52 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wii:mpaper:mr:2020-05&r=all |
| By: | Lorant Kaszab (Department of Economics, Vienna University of Economics and Business; Magyar Nemzeti Bank); Ales Marsal (Department of Economics, Vienna University of Economics and Business; National Bank of Slovakia); Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | Motivated by recent empirical findings that emphasize low-frequency movements in inflation as a key determinant of term structure, we introduce trend inflation into the workhorse macro-finance model. We show that this compromises the earlier model success and delivers implausible business cycle and bond price dynamics. We document that this result applies more generally to non-linearly solved models with Calvo pricing and trend inflation and is driven by the behavior of price dispersion, which is i) counterfactually high and ii) highly inaccurately approximated. We highlight the channels behind the undesired performance under trend inflation and propose several remedies. |
| Keywords: | trend inflation, Calvo pricing, price dispersion, macro-finance, non-linear solution methods |
| JEL: | E13 E31 E43 E44 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp304&r=all |
| By: | Pattanaik, Sitikantha; Muduli, Silu; Ray, Soumyajit |
| Abstract: | This paper examines the usefulness of survey-based measures of inflation expectations to predict inflation using hybrid versions of New Keynesian Phillips Curve (NKPC). While both 3 months ahead and 1-year ahead inflation expectations of households emerge statistically significant in explaining and predicting inflation in India, effectively they work as substitutes of backward looking expectations given that household expectations are found to be largely adaptive. Unlike in other countries, this paper does not find much evidence on flattening of the Phillips curve. Also, no robust evidence is found on expectations induced wage pressures influen-cing CPI inflation. |
| Keywords: | Inflation expectations;Phillips curve; wage-pricedynamics |
| JEL: | E24 E31 E52 P24 |
| Date: | 2020–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103685&r=all |
| By: | Ia Vardishvili |
| Abstract: | I show that firms' ability to delay entry generates a countercyclical opportunity cost of entry and significantly amplifies the effect of the initial aggregate conditions on the selection of entrants. This mechanism enables existing firm dynamics models to reconcile the documented business cycle dynamics of US entrant establishments without leading to an excessive variation in economic aggregates. I find the observed variation of firms at entry is responsible for around three-fourths of the business cycle fluctuations. Finally, I argue that not accounting for the option to delay entry may result in misleading predictions about entrants' responses to different shocks or policies. |
| Keywords: | Option value, entry, firm dynamics, business cycles, propagation, Great Recession |
| JEL: | E22 E23 E32 E37 L25 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2020-07&r=all |
| By: | Martínez-Hernández, Catalina |
| Abstract: | The European Central Bank (ECB) has adopted a mixture of conventional and unconventional tools in order to achieve its mandate of price stability in the current low-inflation, low-interest-rate scenario. This paper contributes to the existing literature by providing a taxonomy of the ECB's policy toolkit and by evaluating its implications on price stability and the anchoring of inflation expectations. I carry out my analysis based on a high-frequency identification and the estimation of a large Bayesian Vector Autoregression. I find evidence of re-anchored expectations as response to quantitative easing and forward guidance, i.e. forecasters revise their long-run expectations upwards. Consequently, inflation increases, which stresses the crucial role of expectations for the transmission of monetary policy. |
| Keywords: | Inflation Expectations,Monetary Policy,Large BVAR,High-frequency identification |
| JEL: | E52 C55 C11 C32 E31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:202018&r=all |
| By: | Landwehr, Jannik J. |
| Abstract: | As a bottom-up approach, a Job Guarantee policy can tackle the issue of unemployment on the macroeconomic, socioeconomic, and individual level in a unique way and promote the social inclusion of the unemployed. This paper aims at analysing the potential obstacles - namely inflationary pressure and financing - of a Job Guarantee policy implementation in the case of Germany. A Job Guarantee's impact on inflation depends on excess production capacities of economic sectors as well as collective wage bargaining structures. In this regard, this paper concludes that under a correct policy design inflationary pressure is no major obstacle. Strengthening workers' bargaining power in Germany through a Job Guarantee policy could even contribute to reaching the inflation target and prevent deflation. However, deficiencies of the European institutional setup and the analogous restrictive fiscal mantra at European and national level limit the political scope for financing a Job Guarantee policy. Notwithstanding, a small to medium size Job Guarantee programme - comprising up to all currently unemployed willing to work - is politically and legally feasible. |
| Keywords: | Job Guarantee,Employer-of-Last-Resort,Public Works,Unemployment,Underemployment,Full Employment,Inflation,Fiscal Policy,Debt Brake |
| JEL: | E24 E62 H63 J68 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1502020&r=all |
| By: | Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)) |
| Abstract: | Models with rational expectation have become quite popular in macroeconomics, particularly in the context of New Keynesian Models and DSGE models, respectively. These models are useful in many respects; however, they suffer from a serious problem which is discussed here in a very basic version: These models have equations with white-noise disturbance terms with finite variance where the size of this variance is assumed to have no impact on the behavior of economic agents and the equilibrium solution or the steady state values, respectively. This, however, is totally implausible Ð from a theoretical perspective, a disturbance term with a very large variance, for example, should have a crucial impact on consumption, investment and output, respectively. In the context of the Great Recession and the Transatlantic Banking Crisis as well as in the Euro Crisis Ð during which one could observe very high volatility of bonds prices pointing to a high variance of disturbance terms - one may therefore raise critical questions with respect to validity of policy recommendations derived from DSGE models. Hence these models should be refined adequately; institutions and regulations have an influence on the variance of white noise disturbance terms and thus various institutional regimes with differences in the variances of these disturbance terms should be discussed. Selected digital expansion and innovation aspects Ð e.g. related to the Corona shock - also are highlighted. |
| Keywords: | New Keynesian Models, DSGE, Rational behavior, Risk, Digital Economics, Macroeconomics |
| JEL: | E31 E44 E47 E52 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei275&r=all |
| By: | Viktor Marinkov |
| Abstract: | The zero lower bound (ZLB) acts as an informational curtain for adaptively learning agents as they cannot observe the path of the interest rate. In a canonical New Keynesian model with no policy change it is shown that this results in a disagreement between the Central Bank and the agents about the lift-off date from the ZLB. Consistent with data from the Swedish Riksbank, the agents expect an earlier lift-off than the Central Bank when the ZLB is binding. The disagreement coupled with the learning of the agents results in explosive dynamics. Forward guidance is shown to restore stability at the ZLB by preÂventing spurious expectational drift. The paper calls for a necessary increase in transparency and communication by the Central Bank when constrained by the ZLB. Although such communication is welfare improving, the gains are modest and no forward guidance puzzle is present. |
| Keywords: | Forward Guidance; Adaptive Learning; Central Bank Communication; Zero Lower Bound |
| JEL: | E43 E52 E58 E61 |
| Date: | 2020–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:923&r=all |
| By: | Abdoulaye Millogo (Université de Sherbrooke) |
| Abstract: | In the aftermath of the 2008 financial crisis, production and employment in advanced economies fell significantly, and remained below their pre-crisis potential level for almost a decade. A recent literature argues that market forces seem to have maintained or amplified this downward trend through hysteresis effects. Particularly intuitive arguments about the emergence of hysteresis effects through financial friction are provided by this literature. However, based on the current state of our knowledge, the theoretical models on hysteresis disregard this important dimension to the understanding of hysteresis. This article contributes to the literature by developing a New-Keynesian model where financial frictions amplify the lingering effects of economic shocks. By calibrating the model on the euro area, the results show that a deterioration of bank capital following a capital quality shock similar to the crisis of high-risk loans generates both persistence and more severity in the fall of production and in the rise of unemployment— more so than the classical models of hysteresis. The impact of shocks is magnified due to the reduction of physical capital in response to a weakening of the financing capacity of investment projects by the banking sector. |
| Keywords: | Production, unemployment, financial frictions, hysteresis, insider-outsider model |
| JEL: | E23 E24 E32 G01 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:20-14&r=all |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Kiril Tochkov (Texas Christian University, Fort Worth, TX, US) |
| Abstract: | Closer integration between Central and Eastern Europe (CEE) and the EUCloser integration between Central and Eastern Europe (CEE) and the EU has opened up channels facilitating the propagation of economic shocks from the core to the eastern periphery. This paper examines the effects of such shocks to economic activity and monetary conditions originating in the Euro area (EA) on output, prices, money, and interest rates in 10 CEE countries over the period 2005-2018 using a bilateral restricted VAR framework. In contrast to previous studies, we use Divisia monetary aggregates and compare the effects of EA spillovers to domestic shocks. The results indicate that EA shocks explain the majority of variation across all macroeconomic indicators, with money supply shocks playing the most prominent role. Despite some heterogeneity, the impulse response of monetary aggregates to domestic andEA monetary shocks is almost identical across countries. The impact of the EA shock increases over time and persists, while the domestic shock dies out relatively quickly. Accordingly, we find no meaningful monetary independence in the majority of CEE countries. This is likely to prove detrimental to the effectiveness of monetary policies in CEE. |
| Keywords: | Monetary policy, spillover, Divisia, Central and Eastern Europe |
| JEL: | E52 E43 E58 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:202007&r=all |
| By: | Nataliia Ostapenko |
| Abstract: | I investigate the role that news sentiment plays in the macroeconomy. Using an approach that combines Doc2Vec embedding and Latent Dirichlet Allocation with lexical-based models I show that the news the media choose to report and the tone of these reports contain impor- tant information for household unemployment, interest rates, and in ation expectations. Topic time series derived from the news and the sentiments they express are employed to estimate how the news a ects the macroeconomy. |
| Keywords: | expectations, sentiment, news, Latent Dirichlet Allocation (LDA), Doc2Vec |
| JEL: | E52 E31 E00 |
| Date: | 2020–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2020-5&r=all |
| By: | Nomaler, Önder (UNU-MERIT); Spinola, Danilo (UNU-MERIT, Maastricht University); Verspagen, Bart (UNU-MERIT, Maastricht University) |
| Abstract: | We present a model of economic growth that is based on Keynesian ideas (the role of autonomous demand in economic growth) as well as Schumpeterian notions (technological change). Our model fits in the Sraffian supermultiplier (SSM) tradition, and we endogenise the growth rate of autonomous demand, and semi-endogenise productivity growth. The basic model has a steady state that is consistent with a stable employment rate. Consumption smoothing (between periods of high and low employment) by workers is the mechanism that keeps the growing economy stable. We also introduce a version of the model where the burden for stabilisation falls upon government fiscal policy. This also yields a stable growth path, although the parameter restrictions for stability are more demanding in this case. |
| Keywords: | Economic growth model, Sraffian supermultiplier, Research and Development , R&D, Keynesian theory, Technological change |
| JEL: | O31 O33 O41 E11 E12 E62 |
| Date: | 2020–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2020049&r=all |
| By: | Hang Bai; Lu Zhang |
| Abstract: | Labor market frictions are crucial for the equity premium in production economies. A dynamic stochastic general equilibrium model with recursive utility, search frictions, and capital accumulation yields a high equity premium of 4.26% per annum, a stock market volatility of 11.8%, and a low average interest rate of 1.59%, while simultaneously retaining plausible business cycle dynamics. The equity premium and stock market volatility are strongly countercyclical, while the interest rate and consumption growth are largely unpredictable. Because of wage inertia, dividends are procyclical despite consumption smoothing via capital investment. The welfare cost of business cycles is huge, 29%. |
| JEL: | E32 E44 G12 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28001&r=all |
| By: | Joseph G. Haubrich |
| Abstract: | Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But many details are matters of dispute: When and where does the yield curve predict successfully, which aspects of the curve matter most, and which economic forces account for the predictive ability? Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, have addressed these issues. For the US, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust indicator of recessions in the post-World War Two period. The spread also predicts future real GDP growth for the US, although the forecast ability varies by time period, in ways that appear to depend on monetary policy. The evidence is less clear in other countries, but the yield curve shows some predictive ability for the UK and Germany, among others. |
| Keywords: | Yield curve; term structure; prediction; recessions |
| JEL: | E43 G12 E32 |
| Date: | 2020–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:89008&r=all |
| By: | James Yetman |
| Abstract: | We investigate pass-through from short-horizon to long-horizon inflation forecasts as a way to assess the anchoring of inflation expectations. We find an overall decline in the pass-through in our sample, with the share of economies having anchored expectations increasing over time. We then investigate what might explain the increase in anchoring. Inflation targeting plays an important role. Low policy rates and persistent deviations of inflation from target are correlated with a decline in expectations' pass-through. This suggests that longer-term expectations remain well anchored, despite recent low inflation out-turns in many economies. |
| Keywords: | consensus forecasts, inflation expectations anchoring |
| JEL: | E31 E58 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:895&r=all |
| By: | Jonathon Hazell; Juan Herreño; Emi Nakamura; Jón Steinsson |
| Abstract: | We estimate the slope of the Phillips curve in the cross section of U.S. states using newly constructed state-level price indexes for non-tradeable goods back to 1978. Our estimates indicate that the Phillips curve is very flat and was very flat even during the early 1980s. We estimate only a modest decline in the slope of the Phillips curve since the 1980s. We use a multi-region model to infer the slope of the aggregate Phillips curve from our regional estimates. Applying our estimates to recent unemployment dynamics yields essentially no missing disinflation or missing reinflation over the past few business cycles. Our results imply that the sharp drop in core inflation in the early 1980s was mostly due to shifting expectations about long-run monetary policy as opposed to a steep Phillips curve, and the greater stability of inflation since the 1990s is mostly due to long-run inflationary expectations becoming more firmly anchored. |
| JEL: | E30 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28005&r=all |
| By: | Jan Philipp Fritsche; Patrick Christian Harms |
| Abstract: | Modern OCA theory has developed different conclusions on when forming a currency union is beneficial. An important pragmatic question in this context is: Did delegating monetary policy to the ECB increase stress in the individual euro area countries? An SVAR analysis reveals that monetary stress has declined more in the euro area than in the euro areas’ doppelganger. The synthetic doppelganger is composed of other OECD countries. This result is independent of the identification strategy (sign restrictions/heteroskedasticity/Cholesky). The results can be rationalized by more formalized central banking and the euro becoming a dominant currency. |
| Keywords: | Economic and Monetary Union, ECB, euro area, structural vector autoregressions, monetary policy stress, sign restrictions, heteroskedasticity, dominant currency |
| JEL: | C32 E42 E52 F45 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1907&r=all |
| By: | Oguzhan Cepni; Yavuz Selim Hacihasanoglu; Muhammed Hasan Yilmaz |
| Abstract: | This paper aims to investigate the co-movement between credit growth and gross domestic product (GDP) growth in Turkey over the period January 2004–October 2019. By taking into account alternative credit decomposition and the variations over time and across different frequencies using the wavelet analysis, the results show that: i) GDP growth highly synchronizes with credit growth compared to other financial variables such as stock exchange, bonds, and exchange rate; ii) There is a high correlation between commercial loan growth and capital formation, whereas a relatively weak one is observed between consumer loans and consumption; iii) Co-movement stemming from Turkish Lira (TL) credits to GDP growth is stronger than foreign exchange (FX) credits where the latter is significant until 2015; iv) Public and domestic private banks are the main drivers of economic activity while the foreign banks are following them. By showing the differential coherence of varied types of credit on GDP growth, we specify that shocks to different credit types are crucial to analyze business cycles. For policymakers, this result implies that the dynamics of different credit types are crucial to analyze the impacts of credit cycles on economic activity. |
| Keywords: | Credit growth, GDP growth, Time variation, Frequency variation, Wavelet analysis |
| JEL: | E32 E44 F43 F44 C49 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2014&r=all |
| By: | Jon Ellingsen; Vegard H. Larsen; Leif Anders Thorsrud |
| Abstract: | Using a unique dataset of 22.5 million news articles from the Dow Jones Newswires Archive, we perform an in depth real-time out-of-sample forecasting comparison study with one of the most widely used data sets in the newer forecasting literature, namely the FRED-MD dataset. Focusing on U.S. GDP, consumption and investment growth, our results suggest that the news data contains information not captured by the hard economic indicators, and that the news-based data are particularly informative for forecasting consumption developments. |
| Keywords: | forecasting, real-time, machine learning, news, text data |
| JEL: | C53 C55 E27 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8639&r=all |
| By: | YiLi Chien; Yi Wen |
| Abstract: | A key feature of the infinite-horizon heterogeneous-agents incomplete-markets (Inf-HAIM) framework is that the equilibrium interest rate of public debt lies below the time discount rate (regardless of capital). This happens because of a positive liquidity premium on asset returns due to imperfect risk sharing. This fundamental property of standard Inf-HAIM models, however, implies that the Ramsey planner's fiscal policy may be time-inconsistent---because the planner has a dominate incentive to issue plenty of debt such that all households are fully self-insured against idiosyncratic risk whenever the interest rate of government borrowing is lower than the household time discount rate. But such a full self-insurance allocation may be infeasible---because to achieve it the optimal quantity of debt may approach infinity or the optimal labor tax rate may approach 100%. This is puzzling from an intuitive perspective because near the point of full self-insurance the marginal gains of increasing debt should be less than the marginal costs of financing the debt under distortionary taxes. We show that this puzzling behavior originates from the assumption that the planner must commit to future plans at time zero. Under such a full commitment, the Ramsey planner opts to exploit the low interest cost of borrowing to front load consumption by sacrificing future consumption in the long run---because future utilities are heavily discounted compared to the inverse of the interest rate on government bonds. We demonstrate our points analytically using a tractable Inf-HAIM model featuring non-linear preferences and a well-defined distribution of household wealth. |
| Keywords: | Time Inconsistency; Optimal Debt; Ramsey Problem; Incomplete Markets |
| JEL: | E13 E62 H21 H30 |
| Date: | 2020–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88991&r=all |
| By: | Feld, Lars P.; Wieland, Volker |
| Abstract: | The ruling of the German Federal Constitutional Court and its call for conducting and communicating proportionality assessments regarding monetary policy have been the subject of some controversy. However, it can also be understood as a way to strengthen the de-facto independence of the European Central Bank. The authors shows how a regular proportionality check could be integrated in the ECB's strategy that is currently undergoing a systematic review. In particular, they propose to include quantitative benchmarks for policy rates and the central bank balance sheet. Deviations from such benchmarks can have benefits in terms of the intended path for inflation while involving costs in terms of risks and side effects that need to be balanced. Practical applications to the euro area are provided |
| Keywords: | central bank independence,monetary law,monetary institutions,monetary policy strategy,proportionality,policy rules,quantitative easing |
| JEL: | E52 E58 K10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:145&r=all |
| By: | Güneş Kamber; Madhusudan Mohanty; James Morley |
| Abstract: | We construct a balanced panel dataset for 47 advanced and emerging market economies over a sample period from 1996 to 2018 to empirically investigate possible changes in the driving forces of inflation. Using an open economy hybrid Phillips curve model of inflation and formally testing for structural breaks, we find relatively little significant change in the underlying driving forces or their quantitative effects for most economies, even after the Great Financial Crisis. However, one notable change has been an increase in the average weight on expected future inflation, measured using professional forecasts, for both advanced and emerging market economies. We find very heterogeneous but significant effects of inflation expectations, domestic and foreign output gaps, exchange rate passthrough, and oil prices, with generally higher sensitivities to external driving forces for emerging market economies. Consistent with the model, the behavior of the various inflation drivers, especially what appear to be better anchored inflation expectations, can explain patterns of changes in the level and volatility of inflation across different economies. |
| Keywords: | open economy Phillips curve, structural breaks, inflation expectations, exchange rate passthrough, inflation volatility |
| JEL: | E31 F31 F41 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:896&r=all |
| By: | Mikel Bedayo; Gabriel Jiménez; José-Luis Peydró; Raquel Vegas |
| Abstract: | We show that loan origination time is key for bank lending standards, cycles, defaults and failures. We exploit the credit register from Spain, with the time of a loan application and its granting. When VIX is lower (booms), banks shorten loan origination time, especially to riskier firms. Bank incentives (capital and competition), capacity constraints, and borrower-lender information asymmetries are key mechanisms driving results. Moreover, shorter (loan-level) origination time is associated with higher ex-post defaults, also using variation from holidays. Finally, shorter precrisis origination time -more than other lending conditions- is associated with more bank-level failures in crises, consistent with lower screening. |
| Keywords: | Loan origination time; lending standards; credit cycles; defaults; bank failures; screening |
| JEL: | G01 G21 G28 E44 E51 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1749&r=all |
| By: | Bedayo, Mikel; Jiménez, Gabriel; Peydró, José-Luis; Vegas, Raquel |
| Abstract: | We show that loan origination time is key for bank lending standards, cycles, defaults and failures. We exploit the credit register from Spain, with the time of a loan application and its granting. When VIX is lower (booms), banks shorten loan origination time, especially to riskier firms. Bank incentives (capital and competition), capacity constraints, and borrower-lender information asymmetries are key mechanisms driving results. Moreover, shorter (loan-level) origination time is associated with higher ex-post defaults, also using variation from holidays. Finally, shorter precrisis origination time —more than other lending conditions— is associated with more bank-level failures in crises, consistent with lower screening. |
| Keywords: | loan origination time,lending standards,credit cycles,defaults,bank failures,screening |
| JEL: | G01 G21 G28 E44 E51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:225986&r=all |
| By: | Ana Beatriz Galv227o; Amit Kara |
| Abstract: | Statistical offices revise GDP values to improve earlier GDP estimates. Revisions are led by updates on data availability and methodological changes, including those required for international comparability. In this paper, we apply the Bry-Boschan Quarterly (BBQ) algorithm for dating turning points on a set of UK real GDP data vintages to assess the impact of GDP data revisions on dating UK business cycles. A peak identified in 2011Q3 suggesting a recession in late 2011/early 2012 vanishes as data revisions are incorporated to previous estimates of real GDP. We also evaluate the impact of turning point revisions on the choice of indicators to provide accurate predictions of recession probabilities. In real-time, the GFK consumer confidence index is the best, but alternative indicators such as CBI retail orders and construction indices are more accurate if recession periods are identified with the latest vintage of real GDP. |
| Keywords: | turning point algorithms, UK business cycles, probit models, recession probabilities, real-time data |
| JEL: | E32 C35 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2020-12&r=all |
| By: | Uwe Böwer |
| Abstract: | Lebanon’s new government was finally agreed in January 2019, after an almost 9-month deadlock over political representation.As much of the reform momentum stemming from an international investors’ conference in April 2018 has faded, the government is now facing the challenge to reinvigorate the reform agenda and make credible steps towards fiscal consolidation. While Lebanon has long been able to maintain a surprising level of resilience amidst high economic volatility and a tumultuous geopolitical environment, the pressure has been rising to tackle the large twin deficits, the very high level of public debt, and the protracted lack of competitiveness. As life-sustaining financial inflows have slowed down, Lebanon’s past business model has come under scrutiny. Substantial fiscal consolidation and a credible plan for growth-enhancing structural and governance reforms would play an important role in rebuilding investors’ confidence and pave the way for an economic recovery built on a solid foundation. Length: 20 pages |
| Keywords: | Lebanon, fiscal sustainability, external rebalancing, financial stability, growth, public sector governance, Böwer. |
| JEL: | E52 E62 F31 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:046&r=all |
| By: | Kaszab, Lorant; Marsal, Ales; Rabitsch, Katrin |
| Abstract: | Motivated by recent empirical findings that emphasize low-frequency movements in inflation as a key determinant of term structure, we introduce trend inflation into the workhorse macro-finance model. We show that this compromises the earlier model success and delivers implausible business cycle and bond price dynamics. We document that this result applies more generally to non-linearly solved models with Calvo pricing and trend inflation and is driven by the behavior of price dispersion, which is i) counterfactually high and ii) highly inaccurately approximated. We highlight the channels behind the undesired performance under trend inflation and propose several remedies. |
| Keywords: | trend inflation, Calvo pricing, price dispersion, macro-finance, non-linear solution methods |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:7809&r=all |
| By: | Jie Chen (Shanghai Jiao Tong University, China); Yu Chen (University of Graz, Austria); Robert J. Hill (University of Graz, Austria); Pei Hu (Shanghai Pudong Development Bank and Fudan University, China) |
| Abstract: | We show that simple median price-rent ratios in Shanghai are distorted by quality differences between sold and rented properties. Correcting for these quality differences using hedonic methods reduces the price-rent ratio by 14%. Even so, the price-rent ratio in Shanghai (at about 67) is still extremely high by international standards. From a user cost perspective, such a large price-rent ratio is driven mainly by the very high rate of expected capital gains on housing. If households form their expectations by simply extrapolating past price trends, we find that the user cost of owner-occupying in Shanghai is negative (implying that everyone except short-term residents wants to owner occupy rather than rent). While for many years the user cost was probably negative, such a situation is not sustainable going forward. By international standards, house prices in Shanghai are already high, which limits the potential for further growth. Expected capital gains, therefore, need to start falling soon to prevent the emergence of a housing bubble. |
| Keywords: | Shanghai housing market; Price-rent ratio; User cost; Hedonic quality adjustment; Capital gains. |
| JEL: | C43 E01 E31 R31 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2020-19&r=all |
| By: | Yunjong Eo; Luis Uzeda; Benjamin Wong |
| Abstract: | Monetary policy is largely concerned with managing the part of inflation that is persistent (or permanent), a quantity often referred to as trend inflation. For example, a casual reading of any monetary policy report from the Federal Reserve Board will make it clear that, in addition to total (or headline) inflation, the Federal Reserve also focuses on underlying (or core) measures of inflation that exclude more volatile components such as food and energy prices. This strategy is based on the belief that fluctuations in components such as food and energy prices are ultimately temporary and, consequently, should be excluded from monetary policy considerations about the long-run path of inflation. Trend inflation is thus closely related to the concept of core inflation, since both measures provide a reading on inflation without the transient “noise†that is expected to fade in the short run. A more recent development is that goods and services—the two main sectors used to measure inflation—have been experiencing considerably different dynamics over the past three decades. Our goal in this paper is to understand how such contrasting behaviors at the sectoral level affect the aggregate level of trend inflation dynamics. To do so, we develop an empirical framework that accounts for historical changes in the volatility and comovement of trend inflation in the goods and services sectors for the US. Our main finding is that, while both sectors used to contribute to the overall variation in aggregate trend inflation, since the 1990s variations in trend inflation have been almost entirely dominated by the services sector. Two changes in sector-specific inflation dynamics drive our key result: (i) a large fall in the variance of trend inflation in the goods sector; and (ii) the disappearance of comovement between the two sectors. We document similar findings when extending our analysis to Australia and Canada, suggesting our results are not US-specific. |
| Keywords: | Econometric and statistical methods; Inflation and prices; Monetary policy: transmission of |
| JEL: | C32 E52 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-45&r=all |
| By: | Serdar Birinci; Kurt See |
| Abstract: | We study optimal unemployment insurance (UI) policy over the business cycle, using a heterogeneous agent job-search model with aggregate risk and incomplete markets. We validate the model-implied micro and macro labor market elasticities to changes in the generosity of UI benefits against existing estimates and we reconcile divergent empirical findings. We show that generating the observed demographic differences between UI recipients and non-recipients is critical for determining the magnitudes of these elasticities. We find that the optimal UI policy features countercyclical replacement rates with an average generosity that is close to current U.S. policy but that it adopts drastically longer payment durations reminiscent of European policies. |
| Keywords: | Business fluctuations and cycles; Fiscal policy; Labour markets |
| JEL: | E32 J65 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-47&r=all |
| By: | Souza, Thiago de Oliveira (Department of Business and Economics) |
| Abstract: | Dollar carry trade risk premiums – unlike dollar-neutral or foreign exchange carry risk premiums – are positively correlated with firm-level dispersions in investment, profitability, and book-to-market in addition to the Treasury-bill rate, long term bond yield, term spread, and default spread. Several forecasting models pin down the few periods responsible for the entire premium, based on these proxies for the latent risk and price of risk states in the U.S. (and its business cycle). This predictability is also statistically and economically significant out of sample: It generates Sharpe ratios as large as 1.37 (compared to 0.44 unconditionally), for example. |
| Keywords: | Carry trade; risk premium; business cycle; microeconomic dispersion; foreign exchange |
| JEL: | E32 F31 G11 G12 G15 |
| Date: | 2020–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2020_010&r=all |
| By: | Andrea Bellucci (European Commission, Joint Research Centre (JRC)); Alexander Borisov (Carl H. Lindner College of Business, University of Cincinnati); Gianluca Gucciardi (European Commission, Joint Research Centre (JRC)); Alberto Zazzaro (Department of Economics and Statistics, University of Naples Federico II) |
| Abstract: | We examine possible reallocation effects on venture capital (VC) investment due to the spread of COVID-19 around the globe. Exploiting the staggered nature of the pandemic and transactionlevel data, we empirically document a shift of venture capital towards deals in pandemic-related categories. A difference-in-differences analysis estimates significant increases in invested amount and number of deals in such categories. We further highlight several heterogenous effects related to the experience of VC investors, their organizational form, and country of origin. Our results underscore the link between the spread of the pandemic and the functioning of the VC market around the world. |
| Keywords: | Venture Capital, Investment, COVID-19, Healthcare, Pandemic |
| JEL: | G24 F21 D81 E22 E44 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:167&r=all |
| By: | Khalid ElFayoumi |
| Abstract: | During both the 2008 and the COVID crises, aggregate employment in Europe and the US fell despite continuing growth in the aggregate capital stock. Using more than one million firm-year observations of small and medium European firms between 2003 and 2018, this paper introduces new stylized facts on how firms’ relative demand for labor and capital evolved as their capital structure adjusted to the events of the 2008 crisis. It also provides the first micro-level evidence that firms substitute capital for labor when financing costs rise. The empirical evidence lends support to the hypothesis that substitution is driven by an incentive to raise holdings of collateralizable capital. The analysis uses the heterogeneous effects of ECB monetary policy surprises across the firm distribution to identify exogenous firm-level external financing shocks. The results suggest that maintaining a well functioning credit market supports a higher labor share of economic growth. |
| Keywords: | Labor demand, financial frictions, jobless growth, labor share |
| JEL: | E3 E5 G3 J2 J3 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1908&r=all |
| By: | Leonard I. Nakamura |
| Abstract: | Corporate equity market values, profitability, and intangible investment have reached high proportions of income. Are these investments and their outcomes evidence of a wellfunctioning society? We do not see the rapid growth in aggregate measures of output that would justify these investments and rewards. And why did the yield curve invert as the U.S. federal funds rate reached 2⅜ percent in early 2019, if the inflation rate was near 2 percent? We present the broad case that mismeasurement of growth and prices accelerated in the U.S. during the 21st century and may be responsible for the appearance of secular stagnation in the U.S. We argue that it is possible that productivity growth has accelerated and that prices have been deflating during much of the 21st century. The evidence is very incomplete; large uncertainties surround these estimates. Indeed, the main message of this paper is that uncertainty in economic measurement has risen substantially. |
| Keywords: | National Accounts; Internet; Information; Inflation; Welfare; Mismeasurement |
| JEL: | O4 O3 E01 |
| Date: | 2020–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:88959&r=all |
| By: | Natasha Kang; Vadim Marmer |
| Abstract: | Recurrent boom-and-bust cycles are a salient feature of economic and financial history. Cycles found in the data are stochastic, often highly persistent, and span substantial fractions of the sample size. We refer to such cycles as "long". In this paper, we develop a novel approach to modeling cyclical behavior specifically designed to capture long cycles. We show that existing inferential procedures may produce misleading results in the presence of long cycles, and propose a new econometric procedure for the inference on the cycle length. Our procedure is asymptotically valid regardless of the cycle length. We apply our methodology to a set of macroeconomic and financial variables for the U.S. We find evidence of long stochastic cycles in the standard business cycle variables, as well as in credit and house prices. However, we rule out the presence of stochastic cycles in asset market data. Moreover, according to our result, financial cycles as characterized by credit and house prices tend to be twice as long as business cycles. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.13877&r=all |
| By: | Eduard Gracia Rodríguez (Universitat de Barcelona) |
| Abstract: | A widespread misbelief asserts that an efficient market would arbitrage out any cyclical or otherwise partially-predictable, non-random-walk pattern on the observed market prices time series. Hence, when such patterns are observed, they are often attributed to either irrational behavior or market inefficiency. Yet, strictly speaking, the efficient markets hypothesis only rules such patterns out of the expected (i.e. mean) path, whereas, if the probability diffusion process is asymmetric (as in most economic and financial stochastic models), the observed time series will approximate the median path, which is not subject to such constraint. This paper combines a general imperfect-competition production function specification (i.e. one generating economic rents) with the concept of time-to-build to develop a rational-expectations, efficient-markets model displaying a valuation cycle along its median path. This model may therefore help to explain the bull-and-bear cycles observed in asset markets generating economic rents e.g. real estate, commodities or, for that matter, most if not all of the assets quoted in the stock exchange. |
| Keywords: | Business Cycles, Bull and Bear Markets, Financial Market Fluctuations, Economic Rents, Time to Build, Efficient Markets. |
| JEL: | E32 E44 G1 G12 G14 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ewp:wpaper:400web&r=all |
| By: | Lee, Dong Wook (Korea U); Shin, Hyun-Han (Yonsei U); Stulz, Rene M. (Ohio State U and European Corporate Governance Institute) |
| Abstract: | High Tobin's q industries receive more funding from capital markets than low Tobin's q industries from 1971 to 1996. Since then, the opposite is true. The key to understanding this shift is that large firms for which q is more a proxy for rents than for investment opportunities have become more important within industries. For these firms, repurchases increase with q but capital expenditures do not, so that q explains more the variation of repurchases than of capital expenditures. Consequently, equity capital flows out of high q industries because, for these industries, stock repurchases are high and issuances are low. |
| JEL: | E22 E44 G31 G35 L16 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2020-02&r=all |
| By: | Chu, Angus C. |
| Abstract: | In this survey, we provide a selective review of the literature on inflation, innovation and economic growth. The relationship between inflation and economic growth is a fundamental question in economics. Most studies in this literature explore this relationship in capital-based growth models. This survey reviews a recent branch of this literature on inflation and innovation-driven growth. Specifically, we develop a canonical monetary Schumpeterian growth model to demonstrate the effects of inflation on innovation and the macroeconomy via different channels. We find that the cash-in-advance constraints on consumption and R&D investment have drastically different implications on the macroeconomic effects of inflation. |
| Keywords: | inflation; innovation;, economic growth |
| JEL: | E31 O3 O4 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103740&r=all |
| By: | Iñaki Aldasoro; Paula Beltrán; Federico Grinberg; Tommaso Mancini-Griffoli |
| Abstract: | Banking flows to emerging market economies (EMEs) are a potential source of vulnerability capable of generating boom-bust cycles. The causal effect of such inflows on EME macro-financial conditions is hard to pin down empirically and should be key to well-informed policy design. We provide novel empirical evidence on the effects of cross-border bank lending on EMEs macro-financial conditions. We identify causal effects by leveraging the heterogeneity in the size distribution of bilateral cross-border bank lending to construct granular instrumental variables for aggregate cross-border bank lending to 22 EMEs. We find that cross-border bank credit causes higher domestic activity in EMEs through looser financial conditions. Financial condition indices ease, nominal and real effective exchange rates appreciate, sovereign and corporate spreads narrow, and domestic interest rates fall. At the same time, real domestic credit grows, real GDP expands, imports rise, and housing prices increase as well. E ects are weaker for countries with relatively higher levels of capital inflow controls, supporting the view that these policy measures can be effective in dampening the vulnerabilities associated with external funding shocks. |
| Keywords: | granular instrumental variables; capital flows; emerging markets; cross-border claims; credit shocks; international banking; capital controls. |
| JEL: | E0 F0 F3 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:899&r=all |
| By: | Andrea Colciago; Stefano Fasani; Rossienza Rossi |
| Abstract: | We formulate and estimate a business cycle model which can account for key business cycle properties of labor market variables and other aggregates. Three features distinguish our model from the standard model with Search And Matching (SAM) frictions in the labor market: frictional firm entry, endogenous product variety, and investment in two assets: stocks and physical capital. Our model with firm dynamics displays an endogenous form of wage moderation. Thanks to the latter, it outperforms the SAM framework augmented with exogenous real wage rigidities. |
| Keywords: | Entry; Unemployment; Bayesian Analysis; Search and Matching |
| JEL: | C5 E32 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:695&r=all |
| By: | Edward Knotek (Research Department, Federal Reserve Bank of Cleveland); Saeed Zaman (Research Department, Federal Reserve Bank of Cleveland, USA;) |
| Keywords: | mixed-frequency models, inflation, density nowcasts, density combinations |
| JEL: | C15 C53 E3 E37 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:2015&r=all |
| By: | Cette, Gilbert (Banque de France, and Université d'Aix-Marseille); Lopez, Jimmy (LEDI, Université de Bourgogne-Franche-Comté, and Banque de France); Mairesse, Jacques (UNU-MERIT, Maastricht University, and CREST ENSEA); Nicoletti, Giuseppe (Economics Department, OECD) |
| Abstract: | This study investigates empirically how managerial practices have affected macroeconomic adjustment during the Great Recession after the 2008 economic crisis. We start by constructing a country*industry balanced panel data over the 2007-2015 period for eighteen industries in ten OECD countries, and complementing it by two indicators: an indicator of management quality at the country level based on the managerial practices categorical scores at firm level from Bloom et al. (2012); and an indicator at the industry level for the shocks stemming from the 2008 economic crisis. We then rely on the local projection method pioneered by Jordà (2005) to estimate the direct impacts of country management quality indicators and industry economic shocks as well as their joint impacts, on five variables of interest: value-added, employment, labour productivity, wage per employee and labour share during the Great Recession. We find that, in countries where management quality is higher, production and employment are more resilient during the Great Recession, with less production losses and employment damages, no effects on productivity, wage moderation and a slight increase in the labour shares. It appears, moreover, that this resilience is increasing with the size of industry shocks. |
| Keywords: | Economic adjustment, Employment, Wage, Management quality, Great Recession, Local projection cross-country analysis, Dynamic modelling |
| JEL: | E24 O15 O32 O47 M11 M54 |
| Date: | 2020–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2020048&r=all |
| By: | Dongue Ndongo Patrick Revelli (University of Douala, Cameroon) |
| Abstract: | Understanding how domestic prices adjust to the exchange rate enables us to anticipate the effects on inflation and monetary policy responses. This study examines the extent of the exchange rate pass-through to the Consumer Price Index in Cameroon and Kenya over the 1991-2013 period. The results of its econometric analysis shows that the degree of the exchange rate pass-through is incomplete and varied between 0.18 and 0.58 over one year in Kenya, while it varied between 0.53 and 0.89 over the same period in Cameroon. For the long term, it was found to be equal to 1.06 in Kenya and to 0.28 in Cameroon. A structural VAR analysis using impulse-response functions supported the results for the short term but found a lower degree of pass-through for the exchange rate shocks: 0.3125 for Kenya and 0.4510 for Cameroon. It follows from these results that the exchange rate movements remain a potentially important source of inflation in the two countries. Variance decomposition shows that the contribution of the exchange rate shocks is modest in the case of Kenya but significant in that of Cameroon |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:392&r=all |
| By: | Emanuel Kohlscheen; Előd Takáts |
| Abstract: | We test whether commercial property performance, proxied by real estate investment trust (REIT) prices, can inform us about bank equity prices. Using data from the United States, the euro area and Japan, we show that REIT prices can predict bank equity prices. Furthermore, a "commercial property factor" adds significant explanatory power to both the CAPM and the 3-factor Fama-French model. At the same time, quantile regressions show that this factor becomes particularly prominent during downturns. It accounts for around half of the drop in average bank valuations during the great financial crisis and, again, during the Covid-19 pandemic. |
| Keywords: | asset prices; banks; commercial property; financial stability; real estate. |
| JEL: | E44 G12 G21 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:900&r=all |
| By: | Kakade, Ameya; Roongta, Dhruv; Haribalaraman, Shravan |
| Abstract: | The Great Lockdown, a severe pandemic-induced economic recession, has resulted in record-high levels of unemployment, last seen in the 2008 financial crisis. In response to this concern, this paper aims to formulate ideal policies to combat cyclical unemployment in a US economy following the onset of the coronavirus. As several policies have already been implemented, the paper also comments on their potential effectiveness. The Keynesian model is used as a reference, and thus demand-side policies are the central focus. This paper examines the employment-oriented fiscal and monetary policies implemented by the US, UK, Germany, Spain, and Japan during the 2008 financial crisis. It then determines their potential success in the United States, chosen due to its significant impact on the world economy. |
| Keywords: | Case Studies, Cyclical Unemployment, Demand-side Policies, The 2008 Financial Crisis, The Great Lockdown, The United States of America |
| JEL: | A1 E0 H0 |
| Date: | 2020–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103747&r=all |
| By: | Winkelmann, Lars; Yao, Wenying |
| Abstract: | This paper develops a two-step inference procedure to test for a local one-for-one relation of contemporaneous jumps in high-frequency financial data corrupted by market microstructure noise. The first step develops a new bivariate Lee-Mykland jump test for pre-averaged, intra-day returns. If a jump is detected in at least one of the two assets, then the second step tests for equal jump sizes. We apply the test procedure to pairs of nominal and inflationindexed government bond yields at monetary policy announcements in the U.S., U.K., and Euro Area. The analysis provides new high-frequency evidence about the anchoring of inflation expectations and central banks' ability to push a measure of inflation expectations towards their inflation target. |
| Keywords: | high-frequency statistics,pre-averaging,jump test,break-even inflation,anchoring of inflation expectations |
| JEL: | C58 C12 C32 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:202017&r=all |
| By: | Hambel, Christoph; Kraft, Holger; Meyer-Wehmann, André |
| Abstract: | This paper studies a household's optimal demand for a reverse mortgage. These contracts allow homeowners to tap their home equity to finance consumption needs. In stylized frameworks, we show that the decision to enter a reverse mortgage is mainly driven by the differential between the aggregate appreciation of the house price and principal limiting factor on the one hand and the funding costs of a household on the other hand. We also study a rich life-cycle model that can explain the low demand for reverse mortgages as observed in US data. In this model, we analyze the optimal response of a household that is confronted with a health shock or financial disaster. If an agent suffers from an unexpected health shock, she reduces the risky portfolio share and is more likely to enter a reverse mortgage. On the other hand, if there is a large drop in the stock market, she keeps the risky portfolio share almost constant by buying additional shares of stock. Besides, the probability to take out a reverse mortgage is hardly affected. |
| Keywords: | reverse mortgage,consumption-portfolio decisions,optimal stopping,biometric risks,financial disasters |
| JEL: | D14 E21 G11 G21 J14 R21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:293&r=all |
| By: | Sebastian Valdecantos |
| Abstract: | The Argentinean economy has just ended another lost decade. After the peak registered in 2011, the per capita GDP has oscillated with a decreasing trend, leaving the economy poorer than it was ten years before. During these ten years, different governments with conflicting macroeconomic programs were in power, none of them able to save the economy from stagflation. The goal of this paper is to address to what extent the economic performance would have been better had other policy combinations been implemented. The analysis is made through an empirical quarterly stock-flow consistent (SFC) model for the period 2007-19 in order to ensure the coherence of the results and to give the outcomes of the simulations a holistic and dynamically consistent interpretation. From the results of the simulations it seems that the problem that is keeping Argentina in stagflation goes beyond the domain of macroeconomics. The fact that in practice two divergent macroeconomic programs were implemented--neither of them being able to produce good and sustainable macroeconomic performance--is a first symptom that favors the case for that hypothesis. When the model is used to counterfactually test the policy recommendations of these approaches with the external conditions that prevailed while the opposite program was implemented, none of them yield results that can be deemed sustainable. Yet, the model developed in this paper can be useful for studying the different policy combinations that, given a specific context, can bring about more stable and sustainable dynamics for the Argentinean economy. |
| Keywords: | Stock-Flow Consistent Models; Argentina; Economic Policy |
| JEL: | C54 E17 E61 E65 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_975&r=all |
| By: | Manuel Adelino; W. Ben McCartney; Antoinette Schoar |
| Abstract: | The distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages has been remarkably stable in the U.S. over the last 25 years. But the source of high-CLTV loans changed during the housing boom of the 2000s, with private securitization replacing FHA and VA loans directly guaranteed by the government. This substitution holds within ZIP codes, properties, and borrower types. Furthermore, the two groups exhibit similar delinquency rates. These findings suggest credit expanded predominantly through the increase in asset values rather than a relaxation of CLTV constraints, which supports models of the collateral channel or broad changes in house price expectations. |
| Keywords: | Household Finance; Mortgages; Loan-to-Value Ratios; Government Guarantees; Collateral Rates |
| JEL: | D30 E3 G21 G28 R30 |
| Date: | 2020–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:88847&r=all |
| By: | Anton A. Cheremukhin |
| Abstract: | When setting initial compensation some firms set a fixed non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two sided heterogeneity, where search intensity and the degree of randomness in matching are endogenous, and firms decide whether to bargain or post wages. We study the implications of heterogeneous search costs and market tightness on the choice of the wage setting mechanism, as well as the relationship between bargaining prevalence and wage level, residual wage dispersion, and labor market tightness. We find that bargaining prevalence is positively correlated with wages, residual wage dispersion, and labor market tightness, both in the model and in the data. |
| Keywords: | Wage bargaining; wage posting; wage dispersion |
| JEL: | E24 J3 J41 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88993&r=all |
| By: | Siddhartha Chib; Minchul Shin; Fei Tan |
| Keywords: | Bayesian inference; MCMC; Metropolis-Hastings; Marginal likelihood; Tailored |
| JEL: | C11 C15 C32 E37 E63 |
| Date: | 2020–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:88714&r=all |
| By: | Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | We address how recursive utility affects important results in the theory of economics of uncertainty and time, as compared to the standard model, where the focus is on dynamic models in discrete time. Several puzzles associated with the standard theory are less puzzling with recursive utility, even if this type of preference representation seems close to the standard one at first sight. An inconsistency with the axioms behind the standard, separable and additive expected utility representation is pointed out and extended to also be relevant for recursive utility. The basic difference from the standard model is that recursive utility allows a form of separation of consumption substitution from risk aversion. This also means that the timing of resolution of uncertainty matters. In dynamic models, however, this turns out to be a rather crucial step. |
| Keywords: | Recursive utility; axioms; scale invariance; utility gradients; the equity premium puzzle; precautionary savings |
| JEL: | D51 D53 D90 E21 G10 G12 |
| Date: | 2020–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2020_013&r=all |
| By: | Lee E. Ohanian; Paulina Restrepo-Echavarria; Diana Van Patten; Mark L. J. Wright |
| Abstract: | This paper quantifies the positive and normative effects of capital controls on international economic activity under The Bretton Woods international financial system. We develop a three region world economic model consisting of the U.S., Western Europe, and the Rest of the World. The model allows us to quantify the impact of these controls through an open economy general equilibrium capital flows accounting framework. We find these controls had large effects. Counterfactuals show that world output would have been 6% larger had the controls not been implemented. We show that the controls led to much higher welfare for the rest of the world, moderately higher welfare for Europe, but much lower welfare for the U.S. We interpret the large U.S. welfare loss as an estimate of the implicit value to the U.S. of preventing capital flight from other countries and thus promoting economic and political stability in ally and developing countries. |
| Keywords: | Bretton Woods; International Payments; Capital Flows |
| JEL: | E21 F21 F41 J20 |
| Date: | 2020–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88995&r=all |
| By: | Andrew B. Martinez (Office of Macroeconomic Analysis, US Department of the Treasury) |
| Abstract: | Long-term expectations are believed to play a crucial role in driving future inflation and guiding monetary policy responses. However, expectations are not directly observed and the available measures can present a wide range of results. To understand what drives these differences, we examine the evolution of alternative consumer price inflation expectations in the United States between 2003-2019. We show that inflation forecasts can be improved by incorporating the differential between survey and market-based measures of expectations. Next, we decompose and extract the differentials in rigidity and information between measures of expectations. While both information and rigidities play a role, the information differential is more important. Using machine learning methods, we find that up to half of the information differential is explained by real-time changes in measures of liquidity. This also explains some past forecast improvements and helps predict the divergence in long-term inflation expectations in 2020. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2020-008&r=all |
| By: | Guido Ascari; Anna Florio; Alessandro Gobbi |
| Abstract: | The adoption of a "makeup" strategy is one of the proposals in the ongoing review of the Fed's monetary policy framework. Another suggestion, to avoid the zero lower bound, is a more active role for fiscal policy. We put together these ideas to study monetary-fiscal interactions under price level targeting. Under price level targeting and a fiscally-led regime, we find that following a deflationary demand shock: (i) the central bank increases (rather than decreases) the policy rate; (ii) the central bank, thus, avoids the zero lower bound; (iii) price level targeting is generally welfare improving if compared to inflation targeting. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.14979&r=all |
| By: | Satyajit Chatterjee; Dean Corbae; Kyle Dempsey; Jose-Victor Rios-Rull |
| Abstract: | What is the role of credit scores in credit markets? We argue that it is a stand-in for a market assessment of a person’s unobservable type (which here we take to be patience). We pose a model of persistent hidden types where observable actions shape the public assessment of a person’s type via Bayesian updating. We show how dynamic reputation can incentivize repayment without monetary costs of default beyond the administrative cost of filing for bankruptcy. Importantly, we show how an economy with credit scores implements the same equilibrium allocation. We estimate the model using both credit market data and the evolution of individuals’ credit scores. We find a 3% difference in patience in almost equally sized groups in the population with significant turnover and a shift towards becoming more patient with age. If tracking of individual credit actions is outlawed, the benefits of bankruptcy forgiveness are outweighed by the higher interest rates associated with lower incentives to repay. |
| Keywords: | Credit Scores; Unsecured Consumer Credit; Bankruptcy; Persistent Private Information. |
| JEL: | D82 E21 |
| Date: | 2020–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:88811&r=all |
| By: | Daniel Rees |
| Abstract: | The Covid crisis prompted an unprecedented global economic contraction. Although the worst is likely behind us, the recovery is likely to be uneven, with economic activity in many customer-facing service industries set to remain constrained for some time. I use a quantitative multi-industry model to estimate the economic forces that explain the decline in economic activity in the United States, the Euro Area, Japan and China in the first half of 2020. I then use the model to project the trajectory of the economic recovery. I find that the US, EA and Japan will each face a '98% economy' if half of the constraints faced by customer-facing service industries in the first half of 2020 persist. The economic recovery in China is projected to occur more quickly. |
| Keywords: | structural change, macroeconomic outlook, model projection |
| JEL: | C32 E60 E17 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:898&r=all |
| By: | Uchida, Hirofumi |
| Abstract: | In this study, we review the studies on the relation between firms’ efficiency or profitability and their exit. Although we take it for granted that inefficient or unprofitable firms are more likely to exit, which we call the natural selection hypothesis, some theories predict that it is not necessarily the case. After reviewing these theories, we sort out a large amount of empirical studies that report direct and related evidence on the relation between efficiency or profitability and exit. |
| Keywords: | Natural selection; exit; efficiency; cleansing effect |
| JEL: | D22 D24 E32 L25 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103938&r=all |
| By: | Sigurd Galaasen; Rustam Jamilov; Ragnar Juelsrud; Hélène Rey |
| Abstract: | What is the impact of granular credit risk on banks and on the economy? We provide the first causal identification of single-name counterparty exposure risk in bank portfolios by applying a new empirical approach on an administrative matched bank-firm dataset from Norway. Exploiting the fat tail properties of the loan share distribution we use a Gabaix and Koijen (2020a,b) granular instrumental variable strategy to show that idiosyncratic borrower risk survives aggregation in banks portfolios. We also find that this granular credit risk spills over from affected banks to firms, decreases investment, and increases the probability of default of non-granular borrowers, thereby sizably affecting the macroeconomy. |
| JEL: | E3 G2 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27994&r=all |
| By: | Emiel Afman |
| Abstract: | This economic brief brings together publicly available income and wealth data and finds that the distribution of income among Dutch households is relatively stable and flat by international standards. Inequalities in net wealth holdings are relatively large. This is to a large extent a debt-driven phenomenon and related to the large number of Dutch households with low and sometimes negative net housing equity. Addressing household debt, e.g. by lowering the debt bias for households in the tax system, would strengthen household balance sheets and lower wealth-risks for households. In intergenerational terms, the position of the baby boom generation stands out. Both in terms of income and wealth, they are much richer than all other generations. However, their wealth position doesn’t deviate much from what one could expect based on theoretical or synthetic counterfactuals, based on actual income and saving patterns. Millennials (born after 1980) seem to have started their working lives at lower real incomes than previous generations. |
| Keywords: | Netherlands, income inequality, wealth inequality, intergenerational inequality, debt bias, household debt, households, economic brief, Afman. |
| JEL: | I30 J10 J11 J30 D04 D31 D63 E62 H23 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:053&r=all |
| By: | Karolina Gralek; Silvia De Poli; Philipp Pfeiffer; Sara Riscado; Wouter van der Wielen |
| Abstract: | The high tax burden on labour in Slovenia is likely to have an adverse effect on labour market outcomes and, in turn, potential GDP. This effect is particularly relevant in an ageing country whose active population is expected to shrink. International institutions have been recommending to Slovenia to rebalance its tax mix away from labour to more growth-friendly tax bases. In October 2019, the parliament adopted changes to the tax code to reduce labour taxes by lowering tax rates, raising tax brackets and increasing the general allowance. Against this background, this economic brief considers the potential effects of the reform, as proposed by the Ministry of Finance in summer 2019, on growth, income equality and labour supply, and weighs it against alternative scenarios. The aim is to highlight potential trade-offs and synergies. We use the European Commission macroeconomic QUEST model to show that the tax shift from labour to corporate income would be more distortive to growth than a shift to the recurrent tax on immovable property, which is currently relatively low in Slovenia. Based on the EUROMOD tax-benefit microsimulation model, we find that a lower tax burden on labour could reduce income inequality and increase labour supply. The effects depend on the design of the reform. |
| Keywords: | Slovenia, tax shift, tax burden on labour, personal income tax, corporate income tax, recurrent tax on immovable property, Labour tax shift in Slovenia: Effects on growth, equality and labour supply, Gralek, De Poli, Pfeiffer, Riscado, van der Wielen. |
| JEL: | H21 H24 H31 E62 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:057&r=all |
| By: | Kady Keita (Université d’Orléans, CNRS, LEO and World Bank); Camelia Turcu (Université d’Orléans, CNRS, LEO, FRE 2014) |
| Abstract: | We explore how fi scal rules, exchange rate regimes and institutional quality affect the cyclical behaviour of scal policy (i.e how government spending responds to GDP fluctuations). We perform our analysis on a panel of 153 advanced, emerging and developing countries over the period 1993-2015 using LGWOLS and 2SLS estimators. We find that the adoption of fi scal rules alone is not suffcient to promote counter-cyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality espcially in countries with exible exchange rate regimes rather than in countries with fixed exchange rates. We also fi nd that the disciplining effect of sfical rules depends on the type of rule. |
| Keywords: | Cyclicality of fiscal policy, Exchange rate regimes, Fiscal rules, Institutions, 2SLS |
| JEL: | E F O |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2019.01&r=all |
| By: | Sébastien Bock (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Idriss Fontaine (UR - Université de La Réunion) |
| Abstract: | Technological change has been biased towards replacing routine labor over the past four decades. We study the implications of those shifts in the task composition of labor demand over the business cycle. We build quarterly time series on hours worked and task premiums from the CPS and assess the e_ects of routine-biased technological change by estimating a VAR model with long-run exclusion and sign restrictions. The decline in total hours worked is driven by routine-biased technology shocks through a decline in routine hours. These shocks appear quantitatively relevant and generate recognizable aggregate uctuations pointing out their relevance to business cycles. |
| Keywords: | Routine-biased technological change,Job polarization,VAR,Long- run restrictions,Hours worked,Business cycle |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-02982145&r=all |
| By: | Eldar, Ofer (Duke U); Wittry, Michael D. (Ohio State U) |
| Abstract: | We show that a large number of firms adopt poison pills during periods of market turmoil. In particular, during the coronavirus (COVID-19) pandemic, many firms adopted poison pills in response to declines in valuations, and stock prices increased upon their announcements. This increase is driven by (1) firms in which activist shareholders acquire ownership stakes, (2) firms in industries that had high exposure to the crisis. Likewise, we find a positive reaction to pills with characteristics that target activist investors. Our results suggest that crisis pills that target potentially disruptive ownership changes may benefit current shareholders. |
| JEL: | E32 G30 G32 G34 G38 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2020-06&r=all |
| By: | Michael Sposi (Southern Methodist University); Kei-Mu Yi (University of Houston, Federal Reserve Bank of Dallas, and NBER); Jing Zhang (Federal Reserve Bank of Chicago) |
| Abstract: | Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, impacting the dynamics of GVC trade: a country becoming more capital abundant concentrates more on the capital-intensive stage of the production. |
| Keywords: | Multistage production; International trade; Capital accumulation |
| JEL: | F10 F43 E22 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:smu:ecowpa:2012&r=all |
| By: | Kiss, Tamás (Örebro University School of Business); Nguyen, Hoang (Örebro University School of Business); Österholm, Pär (Örebro University School of Business) |
| Abstract: | In this paper, we analyse the heavy-tailed behaviour in the dynamics of housing-price returns in the United States. We investigate the sources of heavy tails by estimating autoregressive models in which innovations can be subject to GARCH effects and/or non-Gaussianity. Using monthly data ranging from January 1954 to September 2019, the properties of the models are assessed both within- and out-of-sample. We find strong evidence in favour of modelling both GARCH effects and non-Gaussianity. Accounting for these properties improves within-sample performance as well as point and density forecasts. |
| Keywords: | Non-Gaussianity; GARCH; Density forecasts; Probability integral transform |
| JEL: | C22 C52 E44 E47 G17 |
| Date: | 2020–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2020_013&r=all |
| By: | Kuikeu, Oscar |
| Abstract: | Stating and discussing on preserving Monetary stability is other thing equal an Old and interesting debate for African countries States where since the coming of an African Monetary Fund this ambition to have a common Currency unit at the scale of the geographic area is an unbelieve and unprecedented challenge for here governments States. Kuikeu (2020) starts on evaluating some of the challenges linked to this aim as the determinants for preversing and achieving this kind of stability. Nevertheless, for central African States of cfa franc zone contrary to that in Europe the Monetary integration is the achieving realization of the integration process as revealed by the Advent of Brexit. Therefore, there is a Rationale for economic aspect in this goal of preserving Monetary stability? In particular, for African countries States what dominates much more as determinants in achieving this goal between the Region’s relative abundance in Natural Resources (or the contracyclicity aspect of the production process coming from the dutch disease hypothesis) and the attached concept of leading economy into the integration process (the suppose cyclicity aspect in the production process). These are the main questions we are trying to answer, here. Globally speaking, considering the Obtained Results the VAR Methodology is a suitable and favorable engine to achieve this kind of exercise. |
| Keywords: | nominal anchor Monetary stability Dutch disease cyclical and contra cyclical activity VAR Models |
| JEL: | C32 E52 |
| Date: | 2020–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104006&r=all |
| By: | Roberto Roson (Department of Economics, University Of Venice Cà Foscari; Loyola Andalusia University; GREEN Bocconi University Milan); Camille Van der Vorst (Leuven Centre for Global Governance Studies, KU Leuven) |
| Abstract: | We present the structure and the process of construction of a social accounting matrix for the Spanish region of Andalusia, for the year 2016. The SAM includes 359 accounts with their respective balances of revenues and expenses, and distinguishes exchanges and income transfers between Andalusia, the rest of Spain and the rest of the world. As the dataset provides a detailed summary on the economic structure, we illustrate some key characteristics of the Andalusian economy at the year 2016, by presenting some relevant statistics and indexes. |
| Keywords: | Social Accounting Matrix, Input-Output, Andalusia, Economic Structure |
| JEL: | E01 E16 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2020:22&r=all |
| By: | Andrea Borsato |
| Abstract: | The paper fills a gap in the Secular Stagnation literature and develops an agent-based SFC model to analyse the deep relationship between income distribution and productivity through the channel of innovation. With a steady gaze on US macro-economic data since 1950, we put forth the idea that the continuous shift of income fromwages to profits may have resulted in a smaller incentive to invest in R&D activity, with the decline in productivity performances that characterizes Secular Stagnation in the USA. The paper is the first step toward the growth model that will be developed in Part II. |
| Keywords: | Secular Stagnation, Innovation dynamics, Incomedistribution, Agentbased SFC models. |
| JEL: | E10 O31 O38 O43 P16 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:840&r=all |
| By: | Gundel, Joakim |
| Abstract: | This memo provides an analysis of the implications of prospective debt relief for the dynamics of the political marketplace in Somalia. While there is clearly great moral value in writing off Somalia’s debt and opening the possibility for new development funding, which is in line with recent global trends and emphasised more so given the Covid-19 pandemic, this memo questions the dominance of short-term political calculus over ensuring systems of accountability and transparency. The contradictions of international demands, benchmarks and statements with the reality of those achievements is highlighted below and suggests that international political drivers are problematic and instrumentalised domestically. The memo further suggests that there are high risks in countries such as Somalia that key financial institutions become drawn into the political marketplace making short-term transactional decisions at the expense of long-term institution-building. The study findings were based on 34 interviews conducted between March and August 2020, out of which 26 were carried out remotely and 8 in Mogadishu. The key informants included long-term Somalia analysts and observers, Government and ex-Government officials, Mogadishu-based academics, civil society and businesspeople, ex-World Bank staff, donor and former donor staff members. In addition, the study carried out an extensive literature and media survey, including open sources such as the IMF and World Bank documents available online, as well as other grey literature. |
| JEL: | E6 |
| Date: | 2020–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:107125&r=all |
| By: | Robert J. Barro |
| Abstract: | Long-term data show that the dynamic efficiency condition r>g holds when g is represented by the average growth rate of real GDP if r is the average real rate of return on equity, E(r e ) , but not if r is the risk-free rate, r f . This pattern accords with a simple disaster-risk model calibrated to fit observed equity premia. If Ponzi (chain-letter) finance by private agents and the government are precluded, the equilibrium can feature r f ≤E(g) , a result that does not signal dynamic inefficiency. In contrast, E(r e )>E(g) is required for dynamic efficiency, implied by the model, and consistent with the data. The model satisfies Ricardian Equivalence because, without Ponzi finance by the government, a rise in safe assets from increased public debt is matched by an increase in the safe (that is, certain) present value of liabilities associated with net taxes. |
| JEL: | E21 G12 O4 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28002&r=all |
| By: | Philipp Mohl; Gilles Mourre; Klara Stovicek |
| Abstract: | This Economic Brief examines the size and effectiveness of automatic stabilisers in the European Union (EU). It shows that the tax and benefit system automatically, i.e. at unchanged polices, cushions a sizeable part of the cyclical fluctuations in the EU on average, namely around 35% of the households’ loss of disposable income and around 70% of their consumption loss. However, the degree of automatic stabilisation varies across Member States. Automatic stabilisers are somewhat smaller if behavioural and macroeconomic feedback effects are taken into account. Procyclical fiscal policy hampers the functioning of automatic stabilisers. Good economic times should, therefore, be used to build up fiscal buffers, in full compliance with the Stability and Growth Pact and in particular in highly indebted Member States, to let automatic stabilisers play fully in during downturns. There are several options to increase the efficiency of automatic stabilisers. Nevertheless, enhancing automatic stabilisers is not a panacea, since it can have a negative impact on the allocative efficiency. While automatic stabilisers are the first line of defence against economic fluctuations, they may not be sufficient to fully absorb economic shocks in severe recessions. A well-functioning single market including product and labour markets and further private cross-country risk sharing should contribute to a better capacity of economies to absorb shocks. Moreover, a fiscal stabilisation function at the EU level could complement the automatic stabilisers in case of large shocks. |
| Keywords: | Automatic stabilisers; stabilisation, fiscal policies, tax and benefit system, euro area, the functioning of automatic fiscal stabilisers, Mourre, Mohl, Stovicek. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:045&r=all |
| By: | Röhl, Klaus-Heiner; Rusche, Christian |
| Abstract: | Die Corona-Pandemie hat die Gesellschaft vor große Herausforderungen gestellt, in denen der Staat eine zentrale Rolle zu ihrer Meisterung einnehmen musste. Während staatliche Maßnahmen in einer externen Krise wie der gegenwärtigen Pandemie notwendig sind, können jedoch insbesondere in der Wirtschaft auch negative Auswirkungen durch zu weitgehende staatliche Eingriffe entstehen, deren negative Wirkungen, wie überhöhte Preise, weniger Innovationen und eingeschränkte Auswahlmöglichkeiten erst später sichtbar werden. Eine Analyse der OECD-Staaten zeigt, dass der Staat bereits vor der Corona-Krise eine große Rolle in der Wirtschaft vieler Länder gespielt hat, welche durch die Pandemie noch zugenommen haben dürfte. Auch in Deutschland ist der Staat vor der Pandemie insbesondere auf kommunaler Ebene mit zahlreichen Unternehmen vertreten gewesen. Durch den Wirtschaftsstabilisierungsfonds und Beteiligungen bei CureVac, TUI Group und Lufthansa rückt der deutsche Staat auch auf Bundesebene als wirtschaftlicher Akteur weiter vor. Allerdings muss eine staatliche Beteiligung an Unternehmen bei einer geeigneten Ausgestaltung nicht zu negativen Auswirkungen führen. Werden die staatlichen Maßnahmen so gestaltet, dass der Wettbewerb erhalten bleibt und ein freier Markt, wo möglich, als Allokationsinstrument genutzt wird, kann die Wirtschaft und die Gesellschaft als Ganzes auch gestärkt aus der Krise hervorgehen. Welche Mittel für Eingriffe ins Wirtschaftsgeschehen konkret genutzt werden und welche Leitlinien bei einer Entscheidung über einen möglichen Eingriff befolgt werden sollten wird in dem vorliegenden Policy Paper thematisiert. Dabei wird erörtert, was es bei staatlichen Beteiligungen an Unternehmen zum Schutz der marktwirtschaftlichen Ordnung zu beachten gilt. |
| JEL: | E61 H12 O25 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:222020&r=all |
| By: | Violaine Faubert |
| Abstract: | In recent years, the Irish economy has experienced a sustained expansion phase and the unemployment rate is approaching pre-crisis levels. However, ten years after the crisis, the labour market participation rate, a crucial determinant of labour supply, has not recovered as strongly as expected. Ireland stands out from the EU average, where the activity rate has increased continuously. The pre-crisis peak in the Irish activity rate mainly reflected increased female participation from a low base and the expansion of the labour force through immigrants, in particular EU citizens, who displayed a higher activity rate than Irish nationals. Two structural factors account for the sharp decline in activity observed since 2007. The activity rate of young people (15-24), which used to be extremely high, has converged towards the EU average, as young people have been staying longer in education and training. In addition, the age distribution of the working age population is less supportive. The share of those aged 25 34, whose activity rate is typically highest, has shrunk, while that of individuals over 55, whose activity rate is typically lower, is increasing. Various policy levers could bolster the activity rate. Active labour market policies could improve access to employment for inactive people. As female labour market participation remains far below that of men, bringing more women into the workforce could partly offset the sluggishness of the activity rate. The further increase in the state pension age planned over the next decade could also encourage longer careers. As the impact of these policies would likely materialise only slowly, any further increase in the activity rate is most likely to be driven by net inward migration in the short run. |
| Keywords: | Ireland, employment, migration, labour market participation, labour supply, economic brief, Faubert. |
| JEL: | E24 J21 J61 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:051&r=all |
| By: | Alice Albonico; Guido Ascari; Alessandro Gobbi |
| Abstract: | We study the effects on economic activity of a pure temporary change in government debt and the relationship between the debt multiplier and the level of debt in an overlapping generations framework. The debt multiplier is positive but quite small during normal times while it is much larger during crises. Moreover, it increases with the steady state level of debt. Hence, the call for fiscal consolidation during recessions seems ill-advised. Finally, a rise in the steady state debt-to-GDP level increases the steady state real interest rate providing more room for manoeuvre to monetary policy to fight deflationary shocks. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.15165&r=all |
| By: | Seikel, Daniel; Truger, Achim |
| Abstract: | The reform of the euro zone is stuck. Against the background of political blockades, this report examines from a combined economic and political science perspective how the Euro can be prepared for the next crisis. The report first identifies general requirements for the stabilization of economic and monetary union. Next, the report reconstructs the political logic of the euro crisis and shows that the prospects for realizing far-reaching reform proposals aiming at a fiscal union are poor. Subsequently, the report develops a proposal of how, under the given circumstances, the room for maneuver within the existing framework of economic and monetary union can be extended in a pragmatic way in order to strengthen national fiscal policy as an instrument of macroeconomic stabilization. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wsirep:52&r=all |
| By: | Kumar B, Pradeep |
| Abstract: | In the literature of Economics itself, branches have evolved thanks to different positions held by economists on different economic issues, and most importantly, on the efficacy and desirability of economic policies to address such economic issues. The so-called Classical and Keynesian poles apart positions have stood as the firm foundation for the germination of a couple of developments in economics. But, it may be reiterated that these positions have been premised upon several assumptions which often go diametrically opposite to real-world circumstances. The growing concern of the disconnect of the mainstream economics from the conditions of the real world has made a vacuum. The attention that heterodox economics has been receiving should be regarded as a response to this fill this vacuum. Heterodox economics has grown to occupy an important place in modern economic thinking, and in the years to come, in the field of teaching as well, the elements discussed in heterodox economic will have an indisputable place. In the field of policy making, too, the principles of heterodox have been used. Nevertheless, mainstream economics does not seem to have been shaken by the claims of heterodox economics. For economics to continue as rigorous social science, much celebrated neo-classical tools and its ideas are still more important. |
| Keywords: | Neo-classical economics, Keynesian economics, Margin Concepts, Mainstream economics, Phillips Curve, Rationality assumption, Economic Policy, Orthodox economics, Marxian economics, Behavioral economics |
| JEL: | B50 |
| Date: | 2020–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102857&r=all |
| By: | Mo Abdirahman; Diane Coyle; Richard Heys; Will Stewart |
| Abstract: | Fast-changing technology products present inherent measurement challenges in relation to ensuring that deflators adequately adjust for quality change to allow a like-for-like comparison of volumes of output. Telecommunications services present significant challenges in this area not just because of rapid changes in prices and volumes, but also because the different services provided (text, voice, data) are displaying increasing substitutability. This paper builds on previous work by the authors to provide improved alternatives for telecoms services deflators, calculated for the UK, focussing on whether using revenue-weights or whether using volume weights for fixed components of contract bundles delivers more reasonable results. Our new options deliver declines in the deflator series of between 58% and 84% between 2010 and 2017. These are far faster declines than the deflator calculated by the existing method but considerably reduce the range calculated in earlier work. |
| Keywords: | technological progress, telecommunications, deflators |
| JEL: | E01 L16 L96 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2020-11&r=all |
| By: | Nicolae-Bogdan Ianc (University of Orléans, CNRS, LEO, FRE 2014 and West University of Timisoara, East-European Center for Research in Economics and Business); Camelia Turcu (University of Orléans, CNRS, LEO, FRE 2014) |
| Abstract: | We estimate, using a Panel Vector Autoregressive approach and data from 2001Q1 to 2017Q1, the fiscal multipliers of the European Union (EU) members and candidates. These countries are grouped according to their stages of integration: original members, new Eurozone members, and candidates for the Eurozone and the EU itself. For each group, we assess the impact of a positive spending shock (expansionary) or a positive tax shock (contractionary) on GDP. Our findings suggest that: (i) rising government spending increases GDP in both the EU and Eurozone candidates (Keynesian multipliers), but slightly decreases it in the Eurozone members (non-Keynesian multipliers); (ii) higher taxes are associated with mixed results in terms of GDP dynamics – both increases and decreases in terms of GDP are found – in the four country groups (suggesting the presence of Keynesian and non-Keynesian multipliers). Overall, these outcomes indicate that spending multipliers are, compared to tax multipliers, more sensitive to European Union or Eurozone membership. |
| Keywords: | European Union candidates, Eurozone, fiscal multipliers, (Interacted) Panel VAR |
| JEL: | E F O |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2019.03&r=all |
| By: | Aurelija Anciūtė; Viginta Ivaškaitė-Tamošiūnė; Anamaria Maftei; Janos Varga |
| Abstract: | In 2019, Lithuania overhauled the country’s labour taxation. Social insurance contributions paid by employers and employees were consolidated, and were accompanied by adjustments in gross wages and personal income tax rates, and increases in the minimum gross wage and the tax-free allowance. Simultaneously, the government increased the universal child benefit. Simulations based on the EUROMOD and QUEST models are used to assess the fiscal, redistributive, equity and macroeconomic impact of these reforms. Overall, the set of simulated changes marginally decreases the tax wedge, poverty and income inequality. The labour taxation reform is estimated to be costly, with a small stimulating effect on the economy. |
| Keywords: | Lithuania, labour taxation, child benefits, social insurance contributions, minimum wage, tax wedge, disposable income, income inequality, poverty, growth, Anciūtė, Ivaškaitė-Tamošiūnė, Maftei, Varga. |
| JEL: | D04 D31 D63 E62 H23 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:059&r=all |
| By: | Karen García-Rojas (Departamento Administrativo Nacional de Estadísticas); Paula Herrera-Idárraga (Pontificia Universidad Javeriana); Leonardo Fabio Morales (Banco de la República de Colombia); Natalia Ramírez-Bustamante (Universidad de los Andes); Ana María Tribín-Uribe (United Nations Development Program in Latin America and the Caribbean) |
| Abstract: | This article seeks to analyze the Colombian labor market during the COVID-19 crisis to explore its effect on labor market gender gaps. The country offers an interesting setting for analysis because, as most countries in the Global South, it has an employment market that combines formal and informal labor, which complicates the nature of the pandemic's aftermath. Our exploration offers an analysis that highlights the crisis's effects as in a downward staircase fall that mainly affects women compared to men. We document a phenomenon that we will call a "female staircase fall." Women lose status in the labor market; the formal female workers' transition to informal jobs, occupied women fall to unemployment, and the unemployed go to inactivity; therefore, more and more women are relegated to domestic work. We also study how women’s burden of unpaid care has increased due to the crisis, affecting their participation in paid employment. **** RESUMEN: Este artículo busca analizar el mercado laboral colombiano durante la crisis de COVID-19 y el efecto de esta crisis sobre las brechas de género. Colombia ofrece un escenario interesante para el análisis porque, como la mayoría de los países del Sur Global, tiene un mercado laboral que combina trabajo formal e informal, lo que complica las secuelas de la pandemia. Nuestra exploración ofrece un análisis que destaca los efectos de la crisis en términos de una caída de escalera descendente que afecta principalmente a las mujeres. En el trabajo documentamos un fenómeno de "caída de escalera femenina". Muchas mujeres pierden estatus en el mercado laboral; hay una marcada transición de trabajadoras formales a empleos informales, las mujeres ocupadas en empleos formales e informales caen al desempleo y las desempleadas pasan a la inactividad; en consecuencia, cada vez más mujeres se ven relegadas al trabajo doméstico. Finalmente, estudiamos cómo ha aumentado la carga de las mujeres en cuidados no remunerados debido a la crisis, lo que ha afectado su participación en el empleo remunerado. |
| Keywords: | Gender gap, informality, employment, time use, Colombia, COVID-19, brecha de género, informalidad, empleo, uso del tiempo, Colombia, COVID-19 |
| JEL: | D10 E24 J16 J22 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1140&r=all |
| By: | Gustavo Mellior |
| Abstract: | This paper analyses theoretically and quantitatively the effect that different higher education funding policies have on welfare (on aggregate and at the individual level) and wealth inequality. A heterogeneous agent model in continuous time, which has uninsurable income risk and endogenous educational choice is used to evaluate five different higher education financing schemes. Educational investments can be self financed, supported by government guaranteed student loans - that may come with or without income contingent support - or be covered by the public sector. When educational costs are small, differences in outcomes amongst systems are negligible. On the other hand, when these costs rise to realistic levels we see that there can be large gains in welfare and significant drops in inequality by moving to a system with more public sector support. This support can come in the form of tuition subsidies and/or income contingent student loans. However, as the cost of education and the share of debtors in society gets larger, it is preferable to increase public support in the form of tuition subsidies. The reason is that there is a pecuniary externality of debt that gets magnified when student loans become excessive. While I identify large steady state welfare gains from more public sector financing, I show that the transition costs can be large enough to justify the status quo. |
| Keywords: | Incomplete markets; Higher education funding; Human capital |
| JEL: | D52 D58 E24 I22 I23 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:2005&r=all |
| By: | Petroulakis, Filippos |
| Abstract: | I examine the short-term labor market effects of the Great Lockdown in the United States. I analyze job losses by task content (Acemoglu & Autor 2011), and show that they follow underlying trends; jobs with a high non-routine content are especially well-protected, even if they are not teleworkable. The importance of the task content, particularly for non-routine cognitive analytical tasks, is strong even after controlling for age, gender, race, education, sector and location (and hence for differential demand and supply shocks). Jobs subject to higher structural turnover rates are much more likely to be terminated, suggesting that easier-to-replace employees were at a particular disadvantage, even within sectors; at the same time, there is evidence of labor hoarding for more valuable matches. Individuals in low-skilled jobs fared comparatively better in industries with a high share of highskilled workers. |
| Keywords: | COVID-19,Labor Markets,Recessions,Task Framework,Business Cycles,Unemployment |
| JEL: | D22 E32 J23 J24 M51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:702&r=all |
| By: | Santiago Caicedo; Miguel Espinosa; Arthur Seibold |
| Abstract: | We study firm responses to a large-scale change in apprenticeship regulation in Colombia. The reform requires firms to train, setting apprentice quotas that vary discontinuously in firm size. We document strong heterogeneity in responses across sectors, where firms in sectors with high skill requirements tend to avoid training apprentices, while firms in low-skill sectors seek apprentices. Guided by these reduced-form findings, we structurally estimate firms’ training costs. Especially in high-skill sectors, many firms face large training costs, limiting their willingness to train apprentices. Yet, we find substantial overall benefits of expanding apprenticeship training, in particular when the supply of trained workers increases in general equilibrium. Finally, we show that counterfactual policies that take into account heterogeneity across sectors can deliver similar benefits from training while inducing less distortions in the firm size distribution and in the allocation of resources across sectors. |
| Keywords: | Apprenticeships, vocational training, firms |
| JEL: | E24 J21 J24 M5 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_233&r=all |
| By: | Howard, Greg (U of Illinois at Urbana-Champaign); Liebersohn, Jack (Ohio State U) |
| Abstract: | This paper develops a model of the U.S. housing market that explains much of the time series of rents and house prices since World War II. House prices depend on expec- tations of future rents. We show that rents are tied to regional income inequality, and therefore, house prices are determined by how much faster incomes are growing in richer regions. This theory also matches many cross-sectional facts, including regional varia- tion in rents and prices, differing house price sensitivities to national trends, patterns of inter-state migration, and surveys of income expectations. An industry shift-share instrument provides causal evidence for our channel. The model implies that while interest rates have an ambiguous effect on house price levels, low rates increase house price volatility. |
| JEL: | E22 G12 R31 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2020-04&r=all |
| By: | Michael Ryan (University of Waikato) |
| Abstract: | We quantify the effects of policy uncertainty on the economy using a proxy structural vector autoregression (SVAR). Our instrument in the proxy SVAR is a set of exogenous uncertainty events constructed using a text-based narrative approach. Usually the narrative approach involves manually reading texts, which is difficult in our application as our text—the parliamentary record—is unstructured and lengthy. To deal with such circumstances, we develop a procedure using a natural language technique, latent Dirichlet analysis. Our procedure extends the possible application of the narrative identification approach. We find the effects of policy uncertainty are significant, and are underestimated using alternative identification methods. |
| Keywords: | Latent Dirichlet allocation; narrative identification; policy uncertainty; Proxy SVAR |
| JEL: | C32 C36 C63 D80 E32 L50 |
| Date: | 2020–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:20/10&r=all |
| By: | Christian Weise |
| Abstract: | Portugal experienced a deep economic and financial crisis that led to an EU/IMF programme from 2011 to 2014. Key indicators had been improving significantly since about 2013 and, at the outset of the COVID-19 outbreak in early 2020, the country had reached a much better position in which unemployment was low, there was a balanced government budget, government bonds had a stable investment rating and net immigration was positive. The developments after the end of the programme benefited, on the demand side, from a benign external economic environment, low interest rates and a boom in tourism. The economy’s capacity to take advantage of these factors was decisively improved, on the supply side, by structural reforms, spurred mainly by the implementation of the EU/IMF programme and previous action. The pursuit of structural reforms boosted the skill level and export orientation of the economy. Financial stability improved through the recapitalisation of the banking sector and by addressing non-performing loans. Fiscal consolidation continued throughout the post-programme period but was focused on the headline deficit with only limited structural improvement, mostly relying on historically low interest rates and subdued public investment. EU membership helped Portugal in overcoming the adjustment crisis with the single market, cohesion policy and the euro. European economic surveillance gave guidance and set a solid policy framework which also had positive signalling effects to financial markets. This paper does not address the impact of the COVID-19 pandemic and Portugal’s reaction to it. It rather aims to show how a country that had been under an adjustment programme recovered from a severe crisis and which structural challenges remain. Macroeconomic vulnerabilities due to decreasing but still high public and private debt, a lack of convergence to the EU average income, low productivity levels, and unfavourable demographic trends will influence how the country manages the green and digital transitions and copes with the COVID-19 crisis. |
| Keywords: | Weise, Portugal’s performance since the crisis, adjustment programme, consolidation, migration, Portugal, structural reforms. |
| JEL: | E61 E65 H62 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:058&r=all |
| By: | Fatih Tuluk (Department of Economics, Washington University in St. Louis, USA & Department of Economics, Middle East Technical University Northern Cyprus Campus, Turkey) |
| Abstract: | I construct a model of the ABCP market to capture the trade-offs between traditional and shadow banks. While traditional banks are better equipped in collecting private information, shadow banks can finance more entrepreneurs’ projects since the capital requirements for loans to shadow banks are laxer than those for regular loans. First, the credit risk diminishes the lending capacity of shadow banks, yet it does not activate traditional loans. An increase in the monitoring cost of shadow banks might shift credit from shadow to traditional banks; however, traditional banks cannot restore credit to a level consistent with that initially achieved by shadow banks. Second, the central bank’s private asset purchases transfer credit from traditional to shadow banks and increase the size of funded projects when frictions are moderate in the shadow banking sector. Third, in the case of highly information-sensitive shadow loans, a decrease in the interest rate on reserves improves the lending capacity of shadow banks more than that of traditional banks. |
| Keywords: | Shadow banking, asset-backed commercial paper, capital |
| JEL: | E |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2019.05&r=all |
| By: | Mauricio Villamizar-Villegas (Banco de la República de Colombia); Yasin Kursat Onder (Ghent University) |
| Abstract: | The literature that employs Regression Discontinuity Designs (RDD) typically stacks data across time periods and cutoff values. While practical, this procedure omits useful time heterogeneity. In this paper we decompose the RDD treatment effect into its weighted time-value parts. This analysis adds richness to the RDD estimand, where each time-specific component can be different and informative in a manner that is not expressed by the single cutoff or pooled regressions. To illustrate our methodology, we present two empirical examples: one using repeated cross-sectional data and another using time-series. Overall, we show a significant heterogeneity in both cutoff and time-specific effects. From a policy standpoint, this heterogeneity can pick up key differences in treatment across economically relevant episodes. Finally, we propose a new estimator that uses all observations from the original design and which captures the incremental effect of policy given a state variable. We show that this estimator is generally more precise compared to those that exclude observations exposed to other cutoffs or time periods. Our proposed framework is simple and easily replicable and can be applied to any RDD application that carries an explicitly traceable time dimension. **** RESUMEN: La literatura que emplea diseños de regresión discontinua (RDD) generalmente agrupa observaciones a través del tiempo y a través de valores de corte. Si bien este método es práctico, puede omitir heterogeneidad útil de tiempo. En este documento descomponemos el efecto del tratamiento de RDD en sus partes ponderadas, relacionadas a cada valor temporal. De esta forma, nuestro análisis agrega riqueza al coeficiente estimado, donde cada componente específico del tiempo puede ser diferente e informativo, de una manera que no se expresa actualmente en las estimaciones de corte único o de cortes combinados. Para ilustrar nuestra metodología, presentamos dos ejemplos empíricos: uno usando datos de corte transversales repetidos y otro usando series de tiempo. En general, mostramos que existe una heterogeneidad significativa en los efectos de tiempo. Esta heterogeneidad puede generar diferencias relevantes en periodos económicos. Finalmente, proponemos un nuevo estimador que utiliza todas las observaciones del diseño original y que captura el efecto incremental de la poltica condicional a una variable de estado. Este estimador es generalmente más preciso en comparación con aquellos que excluyen observaciones expuestas a otros umbrales. Nuestra metodología es simple y fácilmente replicable y se puede aplicar a cualquier aplicación de RDD que tenga una dimensión rastreable de tiempo. |
| Keywords: | Regression discontinuity, multiple cutoffs, time heterogeneity, Regresión discontinua, múltiples valores de corte, heterogeneidad de tiempo |
| JEL: | D10 E24 J16 J22 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1141&r=all |
| By: | Roxan, Ian |
| Abstract: | The Great Financial Crisis has increased concerns about whether corporations are paying a ‘fair’ amount of tax in different countries. This begs the question of what a ‘fair’ amount of tax is. The question is complicated by the continuing lack of clarity about the economic incidence of corporate income tax. Recently, it has been argued that the location of the sales revenue (turnover) of a corporation is relevant in determining the fair allocation. Of course, in many countries there is already a tax based on sales, value-added tax (VAT), also called goods and services tax (GST). This paper explores an illustration, arising from a series of cases before the European Court of Justice, of how VAT can impose a burden on corporations. The illustration raises issues of principle for VAT, but also offers lessons about how we tax corporations, particularly given proposals such as for digital sales taxes in the EU and the idea of a destination-based cash-flow tax included in legislative proposals in the US in 2016. This article explores the puzzles raised by the illustration and shows how it can throw light not only on the nature of VAT but also on the incidence of corporate income tax. |
| Keywords: | value added tax; corporate income tax; holding companies; economic incidence of tax; globalisation and tax |
| JEL: | E6 R14 J01 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:102723&r=all |
| By: | Omar Osvaldo Chisari (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET); Juan Ignacio Mercatante (Universidad Torcuato di Tella); María Priscila Ramos (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET); Carlos Adrián Romero (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET) |
| Abstract: | Un problema recurrente que enfrentan los economistas es la ausencia de información completa y actualizada como así también la inconsistencia entre diferentes fuentes de información. Por tal motivo, hemos estimado la Matriz de Contabilidad Social para Argentina 2017. Para esto se recurrió a fuentes de información oficiales y públicas, y se emplearon métodos de estimación que garantizan la consistencia de todos sus flujos. Múltiples usos pueden darse a este tipo de matrices, desde la identificación de cambios estructurales en las relaciones insumo-producto, el estudio de cadenas sectoriales de valor, entre otros. Al mismo tiempo, estas matrices sirven como fuente de calibración de Modelos de Equilibrio General Computados (MEGC) y Modelos de Insumo-Producto (I-O)utilizados para evaluar cuantitativamente los efectos de políticas públicas. Un análisis económico y comparativo de los encadenamientos productivos ilustran el uso de esta matriz. |
| Keywords: | Matriz de Contabilidad Social, Argentina 2017, Encadenamientos productivos |
| JEL: | D58 E16 |
| URL: | http://d.repec.org/n?u=RePEc:ake:iiepdt:y:2020:i:54:p:1-39&r=all |
| By: | John P. Hejkal; B. Ravikumar; Guillaume Vandenbroucke |
| Abstract: | We develop a quantitative theory of mortality trends and population dynamics. In our theory, individuals incur time and/or goods costs over their life cycle, to adopt a better health technology that increases their age-specific survival probability. Technology adoption is a source of a dynamic externality: As more individuals adopt the better technology, the marginal benefit of future adoption increases. The allocation of time and/or goods also depends on total factor productivity (TFP): As TFP grows, more resources are allocated to technology adoption. Both channels---the dynamic externality and TFP---result in lower mortality. Our theory is consistent with three key facts: (i) The cross-country correlation between mortality and income is negative, (ii) mortality in poor countries has converged to that of rich countries although the income of poor countries has not, and (iii) mortality decline precedes economic take-off. We calibrate the model to match mortality in France from 1816 to 2010. Quantitatively, the model accounts for 54% of the closing of the mortality gap between France and low-income countries over the past 50 years. |
| Keywords: | Mortality; population dynamics; technology adoption; diffusion |
| JEL: | E13 I12 I15 J11 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88989&r=all |
| By: | Kaan Celebi (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)) |
| Abstract: | The Trump AdministrationÕs economic policy represents a variety of government interventions designed to stimulate higher output growth as well as higher employment. However, the policy mix adopted in President TrumpÕs economic policy was rather unusual since expansionary fiscal policy Ð including tax rate reductions Ð were combined with an aggressive trade policy; the latter concerned mainly China, but even OECD partner countries were affected and this - in an interdependency analysis - raises questions about negative repercussion effects on US economic performance. Here, in a statistical and empirical analysis, the Panel Data Approach - combined with LASSO methodology - is used to generate a synthetical counterfactual for the US economic performance so that one can evaluate what kind of impact TrumpÕs economic policy can be observed on GDP, unemployment and trade, where Newey-West HAC variance-covariance estimators are used for inference analysis. New findings on the extent to which TrumpÕs economic policy really raised the US economic performance indicators Ð in various fields Ð beyond ÒnormalÓ economic dynamics are derived. Looking at 2017-2019, the comparison of US economic performance with that of a synthetical Òtwin countryÓ (i.e. a US ÒdoppelgŠngerÓ in the absence of Trumpian policies) is useful and suggests that the Trump AdministrationÕs performance is clearly less successful than the US President has claimed when arguing that the economic performance of the US under his leadership was exceptionally good. TrumpÕs economic policy has undermined output growth and worsened the current account and the trade balance, respectively; gross fixed capital formation and the unemployment rate have better performed than predicted. |
| Keywords: | Trump, economic policy uncertainty, counterfactual, Panel Data Approach, LASSO |
| JEL: | C23 C54 E65 F42 O47 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei281&r=all |
| By: | Gundel, Joakim |
| Abstract: | The prospects around hydrocarbons (oil and gas) and future oil concessions have been accelerating in Somalia since 2012. The potential in this sector is already an important factor in political dynamics in the country, as seen for example in the ongoing maritime dispute with Kenya, as well as through the interests of several different countries and the involvement of a number of commercial actors. This memo argues that, while legislation and regulation, at least nominally, has been progressing in the last 3-4 years, it remains unfinished but now frames the operation of the political marketplace, with control over the Ministry of Petroleum and Somalia Petroleum Agency (SPA) constituting the key motivations of political elites and associated bargaining. Control of these ‘institutions’ enables access to informal flows of money as well as allows control over the allocation of sub-contracts, which are likely to come from the various grants and loans that will become available through the debt relief process. Control over contracts is a major issue in Somalia’s political economy and political marketplace. The memo highlights the underlying dynamics behind the regulatory developments and the push for – arguably premature – auctioning. It suggests that speculation is feeding the political marketplace in Somalia; speculation in future oil wealth (in the shortterm through foreign oil companies that are willing to pay access fees, rents and other inducements up front). In addition, speculation on the operational sub-contracts that exploration will generate (logistics, security, accommodation and hospitality). These drivers are elevated in the current pre-election period, where potential unconditional cash injections and the political trading around key positions – and the control or influence of contracts – in the emerging ‘institutions’ are important dynamics. The establishment of the federal government in Mogadishu, in 2012, has changed the organisation of this sector bringing it under a central authority where for years previously arrangements were made with regional authorities. In addition, past controversies associated with Soma Oil (Coastal Exploration) and TGS (Spectrum) still cast a shadow over the Somali petroleum sector and serve a useful purpose in highlighting the reputational risks of opaque engagement in this area and the need for proper regulation and oversight. |
| JEL: | R14 J01 E6 |
| Date: | 2020–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:107126&r=all |
| By: | William D. Lastrapes; Ian Schmutte; Thor Watson |
| Abstract: | We use Texas's constitutional amendment in 1997 that expanded the scope of home equity loans as a source of exogenous variation to estimate the effects of relaxing credit constraints on small businesses. We find, using standard panel data methods and restricted-use microdata from the US Census Bureau, that the Texas amendment increased the use of home equity finance by small businesses, increased new business and job creation and reduced establishment exit and job loss. The effects are larger and significant for businesses with fewer than ten employees. |
| Keywords: | natural experiment, Texas, entrepreneur, difference-in-differences |
| JEL: | M2 M13 R0 E0 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:20-32&r=all |